Phillip Hammond is reportedly considering a minimum wage increase that would put the UK amongst the world’s highest paying nations.
Information obtained by The Observer has suggested that in a bid to end working poverty, the Chancellor is ready to propose an increase to £9.61.
The £9.61 figure would represent 66% of median earnings, a huge step towards tackling the stagnant wages that have plagued the United Kingdom (and much of the western world) since the 1970s.
It is believed that after meeting with trade union leaders in the past week, Hammond is prepared to table the policy.
This comes after the government commissioned a study – to be conducted by labour and public finance economist Arin Dube, – into the impacts that a higher minimum wage would have on unemployment.
This suggests a wider commitment by the government into eliminating working poverty, a significant issue which sees around 4 million British workers living below the poverty line, many of whom are minimum wage workers.
Currently, the top minimum wage band sits at £8.21 an hour, with a rise to around £8.60 expected next year. However, Hammond’s plan is significantly more ambitious.
This has come with criticism, however, with many ground roots conservative support claiming that a higher minimum wage will cost jobs. In fact, the Office for Budget Responsibility has estimated that around 140,000 jobs could be lost by the higher wage.
However, Arin Dube has estimated that there is no significant rise in unemployment caused by minimum wage rises in much of his previous work. This is due to the fact that low wage workers spend a higher proportion of their income on goods and services, therefore the increase in wages will likely be recycled into the economy.
This has been backed up by countless studies, although the wage rise can undoubtedly cause higher inflation, should companies pass on the increased wage costs to consumers. This is the conventional wisdom regarding minimum wage increases, but with rising corporate profits coupling with stagnant wages, it is by no means a guarantee that higher wages will be passed on to consumers.
The wider economic benefits of the fewer working poor through subsequently decreased government spending and greater consumer spending are considerably larger according to significant study.
It is unclear when Hammond wants to reach this goal, however, with a possible date of 2025 largely making the policy seem less radical than it first appears, especially considering the Labour pledge to increase the minimum to £10 by 2020.
In fact, if not implemented until this date, it would perhaps lag inflation during that time, representing no real increase for Britain’s most poorly paid workers, this makes the economic benefits or drawbacks of such a policy largely insignificant, with the policy perhaps representing a counter to the Labour party policy, more than a serious commitment to ending working poverty.
Given that in 1997 Phillip Hammond spoke on the common’s floor against the introduction of a minimum wage at all, it is positive that he sees Britain’s deserve an increase, but given the potential date of implementation, perhaps the generosity and economic impact of this plan is being somewhat overstated.
